Europe’s Growing Energy Crisis Amid Heatwaves and Ukraine War

The Russia-Ukraine war and reduced supply of Russian gas had already burdened Europe with soaring energy prices. The situation has now worsened amid the heatwaves. The demand for gas and air conditioning has increased at a time of power supply crunch.

Although Europe has been experiencing heatwaves more frequently in the last few years, the recent heatwave has been more intense and created challenges in the energy supply chain.

Heatwaves have resulted in the drying up of rivers, impacting the cooling ability of nuclear plants and their output.

Lower Power Production Across Europe

The situation is worse in France where nuclear plants along the Rhône river were forced to lower production. This came at a time when more than half of the nuclear plants in France were on planned maintenance shutdown.

The situation is similar for hydropower in Spain, which gets more than 10% of its power from hydroelectric plants.

Further, the drying up of waterways has also threatened the supply of energy commodities. For instance, dropping water levels in the Rhine river in Germany impedes the delivery of coal to thermal plants.

Add to this, the generation of wind energy was hindered due to low wind speeds. The hot weather also sparked wildfires in some parts of France and the UK.

Europe, which is dependent on Russia for 40% of its gas supply, was forced to reopen coal-powered plants to meet its energy requirements.

However, this has not satiated the energy requirements of the region. The situation worsened with the heatwaves and shutdown of the Nord-1 gas pipeline from Russia to Germany.

Electricity costs have meanwhile shot up to historical highs in France and Germany.

In the U.K., power bills are rising though the new government has frozen electricity prices at £2,500 per year for two years.

Tight energy supply and high energy prices have forced European governments to limit energy usage, prohibiting outside lighting for buildings in Germany and reducing indoor heating temperatures.

Impact on Metals Supply and Prices

Amongst businesses, energy-intensive industries such as metallurgy could be worst-hit due to the tight energy market.

Soaring energy prices are creating a cascading effect on the prices of zinc and aluminium in Europe. Zinc smelting supplier Nyrstar has decided to halt the production and put the plant under maintenance until further notice.

Other industries crippled by increased energy prices include fertilizers, cement, steel and aluminium threatening production cuts.

With no signs of the European energy crisis abating, prices are likely to remain above the pre-COVID-19 period for the rest of 2022 and beyond.

Author: Ashwini.Uthaman@gep.com